Countries are facing tough choices when dealing with the impact of rising inflation, lingering pandemic, and historically high debt levels, the IMF said in April with the release of the Fiscal Monitor report.
The unusually high degree of uncertainty affects all countries differently. Emerging markets and low-income developing countries serving as net importers of energy and food will be especially hit by elevated international prices, putting pressure both on growth and public finances.
“The world is facing a food crisis, an energy crisis right now. Prices were already high and rising at the end of 2021. Russia’s invasion of Ukraine pushed prices still higher. The fiscal monitor recommends that policymakers focus on the most vulnerable, the most vulnerable people, the most vulnerable countries,” said Vitor Gaspar, Director of the Fiscal Affairs Department at the IMF.
This release of the report expects that the average public debt in advanced economies is projected to decline to 113 percent of GDP by 2024, mirroring the recovery from the pandemic-related recession. Debt is projected to continue to rise in emerging markets, reaching 72 percent of GDP by 2024.
Among low-income developing countries, debt is expected to gradually decline to 48 percent of GDP by 2024. Public debt is expected to go down faster in commodity exporters thanks to positive terms-of-trade shocks.
“The Fiscal Monitor zooms in on sovereign debt risks. At this point, international bond markets are functioning well, but some non-systemic emerging markets are already facing elevated yield spreads. Almost 60 percent of low-income developing countries are at debt distress or high risk of debt distress,” added Gaspar.
In countries where economic growth is less exposed to the conflict and central banks are raising rates to fight high inflation. Fiscal policy should move away from the exceptional support provided during the pandemic toward normalization. In many emerging markets and low-income developing countries, trade-offs are harsher.
“In the fiscal monitor, we focus on two policy recommendations. At the national level, prioritize spending. Preventing hunger is imperative. At the global level, there are urgent problems that require immediate attention.
Policymakers all around the world must come together and agree on how to approach urgent problems like pandemics, climate change, food insecurity, energy insecurity, debt, and development,” said Gaspar.